Home / Economy / Are we headed for higher GST rates?

NEW DELHI : A top tax committee is set to weigh an increase in India’s goods and services tax (GST) slabs to raise an extra 3 trillion revenue annually, a person aware of the plans said.

Proposals to increase the 5% slab to 7% and the 18% slab to 20% will be examined by a group of state ministers set up by the GST Council, the person cited above said on condition of anonymity. The additional tax revenue will be shared equally by the Centre and states.

The tax hike will help stabilize tax revenues for the Centre, which is facing a shortfall after the recent fuel duty cuts and create space for spending on welfare schemes. Equally, it will save states from the upcoming fiscal cliff when the GST compensation from the central government expires in June next year.

Major state economies such as Gujarat, Karnataka, Tamil Nadu, Maharashtra, Punjab, and Uttar Pradesh are big recipients of GST compensation.

Both the central and state governments are facing revenue pressures owing to higher spending needs and the economic impact of the second wave of the covid-19 pandemic in the first half of the current fiscal.

“Borrowing to meet the revenue gap is not feasible. Corporate and personal income tax rates and taxes on petrol and diesel have already been reduced. What is left is only GST," the person cited earlier said. “If we raise the merit GST rate from 5% to 6%, it could fetch about 40,000 crore to 50,000 crore a year," said the person. Merit rate is the lowest slab above the zero-rate applicable on essential items.

A second person, who is also privy to the discussions in the Council, said a final decision is yet to be taken. “Talks on slab rationalization are on, but there is a view that more study is needed before we implement this. Major structural changes should not be made in a hurry," said the person, who also spoke on the condition of not being named because a ministerial panel is yet to consider it. A group of ministers led by Karnataka chief minister Basavaraj Bommai will examine the proposals made by a committee of state and central officials on Saturday.

Other proposals include a revision in the rates of compensation scheme meant for small businesses and the GST rate on precious metals. Some states are pitching for the slab revision from 1 April 2022, the first person cited above said. An email sent to the finance ministry on Tuesday remained unanswered at the time of publishing. After the introduction of GST in 2017, the GST Council has announced several rounds of tax reductions as the new tax regime brought transparency into the actual tax burden on goods and services. However, this has led to an erosion of the indirect tax base.

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